NOBLE ENTERPRISES LTD v. SIN KWOK YING AND OTHERS

LDCS 20000/2019

[2021] HKLdT 9

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 20000 OF 2019

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BETWEEN

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J U D G M E N T

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1.  This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of Inland Lot No 942 (hereinafter referred to as “the Lot”). Erected thereon are three blocks of 10-storey residential buildings (namely Block A & B, Block C & D and Block E & F, collectively known as Jade Garden, facing an access road branching off Robinson Road. The buildings, are each served by one lift and two common staircases with the postal address of No 105 Robinson Road (“the Buildings”) in Mid-levels, Hong Kong.

2.  The occupation permits for the Buildings (“OPs”), H62/68 and H172/68, were issued on 7 March 1968 and 13 September 1968 respectively permitting carports for non-domestic use on Ground Floor (“G/F”) and 2 flats per floor on each block for domestic use from 1^st Floor to 9^th Floor. According to the set of building plans of reference no 2/2019/66 approved by the Building Authority on 1 June 1966, 17 March 1967 and 7 March, there are 2 residential units on each floor of either block of the Buildings from 1/F to 9/F and 54 car parking spaces on G/F

3.  The Buildings were governed by one Deed of Mutual Covenant which allots 9/540 undivided share to each residential flat and 1/540 undivided share to each car parking space. At the time of the Application dated 27 June 2019, the applicant owned 83.333% of the undivided shares of the Lot save for the following units owned by the respondents:

Unit	Respondent
Flat F, 2/F	1st respondents (“R1”)
Flat A, 3/F and Car Parking Space No 29	2nd respondent (“R2”)
Flat B, 3/F and Car Parking Space Nos 41 & 42	3rd respondent (“R3”)
Flat E, 3/F and Car Parking Space No 43	4th respondent (“R4”)
Flat F, 3/F and Car Parking Space No 2	5th respondent (“R5”)
Flat B, 4/F and Car Parking Space No 18	6th respondent (“R6”)
Flat E, 5/F and Car Parking Space No 44	7th respondent (“R7)
Flat F, 5/F and Car Parking Space No 4	8th respondent (“R8”)
Flat F, 7/F and Car Parking Space No 47	9th respondent (“R9”)

4.  Subsequent to the Application, the applicant successfully acquired the units owned by R2 and R9 and the application against them was discontinued. Hence, the applicant owns 87.037% of the undivided shares of the Lot.

5.  In the trial, Ms Nancy Ngai instructed by Messrs Lo & Lo, Solicitors & Notaries Public, represented the applicant whereas R1, R3, R5, R6, R7 and R8 were represented by Mr Bosco Cheng (“Mr Cheng”) instructed by Messrs KM Lai & Li, Solicitors and Notaries, and R4 was represented by Mr Abel Lau (“Mr Lau”) of Messrs Chan, Lau & Wai, Solicitors, Agents for Trade Marks & Patents.

Whether the Applicant is entitled to make the Application

6.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application.

7.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice.

8.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”).  Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%.  Those classes of lots include “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 

9.  As the OPs for the Buildings was issued on 7 March 1968 and 13 September 1968 respectively, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

10.  The applicant, owning more than 80% of the undivided shares of the Lot, was entitled to file the Application under section 3(2)(b) of the Ordinance.

Settlement of Application

11.  Mr Cheng, in his opening submission dated 21 January 2021, clarified that he would not take issues on the following matters:

(1) The applicant’s entitlement in making the Application under the Ordinance;

(2) Age and/or state of repair of the Buildings; and

(3) Reasonableness of the steps taken by the applicant in acquiring all the undivided shares of and in the Lot.

ie R1, R3, R5, R6, R7 and R8 would not object that the Tribunal would make an order for sale under the Ordinance.

12.  Mr Lau for R4 did not take the issues either.

13.  Thus, the remaining issues in dispute between the applicant and the respondents before trial were:-

(1) What is the market value (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”) of each of the units in the Buildings as at 24 May 2019 as assessed in accordance with Part 1 of Schedule 1 to the Ordinance.

(2) Whereas an order for sale of the Lot can be granted, what the redevelopment value (“RDV”) of the Lot should be for the purpose of setting the reserve price of the public auction according to clause 2 of Schedule 2 to the Ordinance.

14.  At the beginning of the trial, the Tribunal was informed that the parties had come to an agreement on the EUV of all units in the Buildings as set out in the Second Schedule of their Settlement Agreement dated 25 January 2021 which is reproduced at Appendix 1 of this judgment. The parties also agreed that the RDV of the Lot was $2,505,000,000 as at 30 December 2020.

Whether Redevelopment of the Lot is Justified

15.  Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Buildings is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lot.

16.  The applicant had adduced the expert evidence of two experts namely, a Condition Survey Report by Mr Wong Wing Cheung Dennis dated 28 February 2020 and a Structural Assessment Report by Mr Wong Chi Ming dated 26 February 2020.

17.  The respondents do not take issue on the age and/or state of repair of the Buildings. Nor have adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Buildings. Thus, I am satisfied that redevelopment of the Buildings is justified due to the age and state of repair.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

18.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interests of the respondents under Section 4(2)(b) of the Ordinance.

19.  The applicant has made the following offers to the respondents through its solicitors to acquire the respondents’ units or interests they own:

	Date of offer
	5 June 2019*	6 March 2020	8 January 2021
R1’s Unit	$37,730,000	$37,730,000	$37,730,000
R3’s Unit	$44,190,000	$44,190,000	$44,190,000
R4’s Unit	$43,810,000	$43,810,000	$43,810,000
R5’s Unit	$44,010,000	$44,010,000	$44,010,000
R6’s Unit	$40,350,000	$40,350,000	$40,350,000
R7’s Unit	$44,090,000	$44,090,000	$44,090,000
R8’s Unit	$44,390,000	$44,390,000	$44,390,000
R9’s Unit	$42,070,000	$42,070,000	Interest acquired

*   These offers included the advice letters of the applicant’s valuation expert setting out the relevant valuation assessments and calculations of the share of the respondents’.

20.  The respondents do not take issue on reasonableness of the steps taken by the applicant in acquiring all the undivided shares of and in the Lot. Bearing in mind the above, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including negotiating for the purchase of such of those shares as are owned by R1, R3, R4, R5, R6, R7 & R8 on terms that are fair and reasonable.

21.  Notwithstanding the above, the Court of Appeal in Good Faith Properties Ltd v Cibean Development Co Ltd [2014] 5 HKLRD pointed out at §12 as follows:

“The minority owner is quite entitled to insist on his right as private owner in rejecting any offers from the majority owner(s). After all, a person can have many reasons for refusing to sell his property and one should not simply focus on the monetary market value of a property to form views about the worth of one’s ownership. Though Hong Kong is a capitalistic society, we do not sell everything just because the price is right. … Thus, it should not be regarded as a legal wrong for a minority owner to reject an offer from the majority owner even though such an offer may meet the statutory reasonable step requirement under s4(2)(b).”

22.  Under the Stamp Duty (Amendment) (No. 2) Ordinance 2018, unless specifically exempted or otherwise provided in the law, acquisition of more than 1 residential property under a single instrument executed on or after 12 April 2017 will be subject to ad valorem stamp duty at the rate under Part 1 of Scale 1 – a flat rate of 15%, even if the purchaser/transferee is a Hong Kong Permanent Resident (“HKPR”) who is acting on his/her own behalf and does not own any other residential property in Hong Kong at the time of acquisition.

23.  In addition, The Stamp Duty (Amendment) Ordinance 2014 imposes Buyer's Stamp Duty (BSD) on residential property transactions with effect from 27 October 2012. except where the purchaser or the transferee is a HKPR acquiring the property on his/her own behalf (i.e. the person is both the legal and beneficial owner)., any agreement for sale or conveyance on sale for acquisition of any residential property executed on or after 27 October 2012 will be subject to BSD. BSD is charged on residential property transactions, on top of the existing ad valorem stamp duty and the special stamp duty, if applicable.

24.  In the present case, the Tribunal was informed that the respondents are concerned about paying the above stamp duties when they want to acquire a new or alternative residential property (“the replacement property”) after their interests in the Lot (“original property”) are sold in private settlement. The same concern was also raised in Wellcity Development Limited & Others v Mak Chun Fu & Others, LDCS 22000/2014 (unreported, 28 April 2017). Then the Tribunal explained, by reference to the principle as pronounced by the English Court of Appeal in Horn v Sunderland Corporation [1941] 1 All ER 480, at §63 as follows:

“… with a view to realizing the full redevelopment potential of the land so as to achieve the highest price obtainable in the market for benefit of all owners, the lot in question must be sold, and on vacant possession basis. All owners need be moving out and the building demolished for redevelopment in order that the full potential can be achieved. It is a price that an owner needs to pay in order to realize the redevelopment of the land. The costs as well as attributes for realizing that potential must have already been factored into the sale price. Once the value of the land with the redevelopment potential realized has been converted into a sum of money represented by the sale proceeds, the compensation process has completed. It will be up to minority owner whether to purchase another premises, or invest into other ventures. Anything on the top of the sale proceeds to take care of costs of any post-sale acquisition will be more than what should be required of under the principle of equivalence.”

25.  Under sections 29AM and/or 29BE of the Stamp Duty Ordinance, Cap 117, however, if the replacement property is acquired by the purchaser to replace an original property sold pursuant to an order for sale made under the Ordinance, the stamp duty chargeable will be in accordance with lower Scale 2 rates instead.

26.  Similarly, under sections 29CB(4) and/or 29DB(5) of the Stamp Duty Ordinance, Cap 117, if the replacement property is acquired by the purchaser to replace an original property sold pursuant to an order for sale made under the Ordinance, the acquisition is not chargeable with buyer’s stamp duty.

27.  Thus, by consent under their Settlement Agreement dated 25 January 2021, the applicant and the respondents jointly apply herein for an order for sale in respect of all undivided shares of the Lot.

Order

28.  This Tribunal make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” and “state of repair” of the Buildings and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including those of the 1^st, 3^rd, 4^th, 5^th, 6^th, 7^th and 8^th respondents;

(2) All the undivided shares in the Lot, the subject of the Application herein, be sold by way of a public auction for the purposes of the redevelopment of the Lot under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3) Ms Anna Chow and Mr Anthony Chow, nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow, Solicitors and Notaries, dated 4 January 2021;

(4) The Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow, Solicitors and Notaries, dated 4 January 2021;

(5) For the purpose of the sale of the Lot by public auction under section 5(1)(a) of the Ordinance:

(i) The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale[1] to be initialed and approved by the Tribunal.

(ii) The reserve price be set at $2,505,000,000.

(iii) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Buildings shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot shall become the owner of the Lot.

(iv) Liberty to the applicant, the 1^st, 3^rd, 4^th, 5^th, 6^th, 7^th and 8^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

29.  Subject to any costs order(s) previously made (if any), the applicant do pay the respondents’ costs of the Application with Certificate for counsel, to be taxed on High Court scale if not agreed.

30.  Last but not least, the Tribunal thanks both counsel for their assistance.

Appendix 1 (1)

Appendix 1 (2)